1. Your company can lease a truck for $10,000 a year (paid at the end

QUESTION

1. Your company can lease a truck for $10,000 a year (paid at the end of the year) for six years, or it can buy the truck today for $50,000. At the end of the six years the truck will be worthless. If the interest rate is 6%, what is the present value of the lease payments? Is the lease worthwhile?
2. Ford Motor stock was one of the victims of the 2008 credit crisis. In June 2007, Ford stock price stood at $9.42. Eighteen months later it was $2.72. What was the annual rate of return over this period to an investor in Ford stock?
1. PV of lease payments: = 10000*(1-(1 .06)^-6)/.06 = 49,173 Lease is worthwhile, as PV of lease¦

lt;buy cost. 2. Annual rate of return: = (2.72/9.42)^(1/1.5)-1 = 56.39%

ANSWER:

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